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Scooter Store on a crash course

Feb. 20 was supposed to be a big day for the Scooter Store. And it was – for the wrong reason.

Company executives were confident they had found a lender willing to refinance the financially distressed distributor of power-mobility devices and scooters. The bank’s credit committee in Dallas was set to review the loan that day.

Scooter Store CEO Martin “Marty” Landon was just wrapping up a meeting about 9 that morning when he spotted from his third-floor office a solitary black-and-white state trooper sedan patrolling the company parking lot. General Counsel Jason Cone told Landon he would check it out, the CEO recalled.

Before Cone could do so, six federal agents were there to greet Landon and Cone as the latter opened the door.

‘Upside down’

“And our world turned upside down from that point forward,” Landon said.

For the Scooter Store, which had grown into an industry behemoth, the raid touched off a chain of events that culminated Sept. 13 with word that the company was going out of business. After the raid, it was apparent to many observers that it would end badly for the company.

Initially, though, confusion reigned.

“I, honest to God, thought it was a bomb threat,” said an employee who didn’t want to be identified. “I couldn’t imagine what would cause people to storm the building like that.”

Employees were ordered out of the building, but it quickly became apparent this was no bomb scare. Executives were sequestered in separate offices – each guarded by an FBI agent. The executives weren’t permitted to talk to each other or use their cell phones for the next couple of hours.

It turned out the raid on the Scooter Store’s headquarters was part of a Justice Department investigation, believed to be related to Medicare and Medicaid fraud. Some 150 federal agents descended on the company’s headquarters that day. Authorities haven’t said much about their investigation, which is ongoing. But Landon said there are both criminal and civil components to the investigation.

The Scooter Store had long been dogged by allegations that some of its customers were prescribed power-mobility devices even though they didn’t have a medical need. The store, too, operates in an industry that government officials have said is rampant with fraud and improper payments.

Scooter Store commercials filled midday and late-night TV with pitches to viewers to find out if they qualify for one of the devices “at little to no cost to you.” That drew the anger of at least one U.S. senator last year.

The raid sent the company into an even steeper tailspin of which it was never able to pull out. The lender it had lined up to provide financing backed out. Pink slips were issued to most of the Scooter Store’s workforce in March. A month later, the company filed for bankruptcy protection.

The deathblow

But the deathblow didn’t come until Sept. 11, when the company was notified that it would no longer be permitted to do business with Medicare. The national insurance program has accounted for about 75 percent of the Scooter Store’s business.

Two days after the letters arrived, the Scooter Store announced it would be shutting down and “furloughing” most of its remaining 370 employees.

Among those to go was Landon, a former chief financial officer for San Antonio wound care company Kinetic Concepts, who had been hired by the Scooter Store in August 2012 to chart a turnaround.

The company has indicated the investigation is focused on prior management and not Landon’s crew. Recently filed bankruptcy court documents seem to indicate former executives Michael Clark and Timothy Zipp are targets.

“The company had a very high cost structure for what they did because it was focused on consumers,” Landon said. “High cost of advertising. High cost of customer acquisition. So there was very little profit falling out the bottom.”

Besides the Justice Department investigation, an independent auditor last year found that the Scooter Store received between $46.8 million and $87.7 million in overpayments.

The company agreed to repay $19.5 million – the amount it determined it was overpaid – but only after the inspector general’s office of the U.S. Health and Human Services Department threatened to cut the company out of federal health care programs. Investigators found the failure to immediately refund the overpayments breached a five-year “corporate integrity agreement” from 2007. The company entered into the agreement to settle charges that it made false Medicare claims and defrauded the government.

“The Scooter Store was a toxic brand,” said Patrick Burns, a spokesman for Taxpayers Against Fraud in Washington. “When you become a toxic brand in bad odor, not only does every bill that you submit get looked at, but people who pay the bills look for an excuse to no longer do business with you.”